DOES VERTICAL INTEGRATION FACILITATE DOWNSTREAM COLLUSION?

This paper employs a successive Cournot oligopoly model to investigate the impact of vertical integration on the sustainability of downstream tacit collusion. We find that the strategic buying by a vertically integrated firm in the intermediate good market can make tacit collusion harder to sustain....

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Bibliographic Details
Published inAcademia economic papers Vol. 44; no. 4; p. 487
Main Authors Wen, Wei-Jen, Lee, Wen-Chieh, Ou, Yi-Fen
Format Journal Article
LanguageChinese
Published Taipei Institute of Economics, Academia Sinica 01.12.2016
Subjects
Collusion
Economic theory
Impact analysis
Oligopoly
Studies
Vertical integration
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Summary:This paper employs a successive Cournot oligopoly model to investigate the impact of vertical integration on the sustainability of downstream tacit collusion. We find that the strategic buying by a vertically integrated firm in the intermediate good market can make tacit collusion harder to sustain. The reason is that the effectiveness of strategic buying is inversely related to the degree of competition in the downstream market. Therefore, in the collusion phase, the integrated firm disadvantages the downstream cartel with a higher intermediate good price by buying more intermediate goods strategically. On the other hand, in the phase of Nash reversion, the punishment for deviation is ameliorated by a lower intermediate good price as a consequence of reduced strategic buying.
ISSN:1018-161X
1810-4851